Pot attracts different kinds of farmers

Despite the risks involved, hundreds of people are eager to step into Washington state's new recreational marijuana industry. Potential profits are high, but pot's federal status remains unchanged: It's illegal under the Controlled Substances Act.

Capital Press

Published on December 6, 2013 9:55AM

Courtesy of The Chronicle
While standing inside his large warehouse, Brandon Milton, a Seattle developer, points to a portion of the land he owns in Vader, Wash., on a recent Saturday afternoon. Milton is one of hundreds of Washington state residents who hope to obtain state permits allowing them to grow marijuana.

Courtesy of Nicholas Pouch
Experienced in growing medical marijuana for his own needs, small farmer Nicholas Pouch considers growing it for the recreational market.

Courtesy of Nicholas Pouch
Several varieties of marijuana grow at Nicholas Pouch’s farm. These 2-week-old plants, started with seeds from Amsterdam, The Netherlands, will be ready to flower in three weeks.

Courtesy of Nicholas Pouch
New marijuana plants of several varieties grow at Nicholas Pouch's farm. He has been farming pot for his medical needs.

Brandon Milton stands inside the large warehouse on his 30 acres on the west side of Vader, Wash., where he hopes to grow marijuana for Washington state’s recreational marijuana market.

Seattle businessman Brandon Milton has no experience as a farmer, but he figures he can make millions of dollars growing marijuana.

Small farmer Nicholas Pouch has been growing medical marijuana for years, and the possibility of growing recreational marijuana stirs his passion for what he sees as a “beneficial product.”

Marijuana has been grown illegally across the U.S. Now that Washington state and Colorado have legalized the recreational use of pot, growing it legally is a brand-new prospect, both for entrepreneurs like Milton and farmers like Pouch.

Call it agri-juana or mari-culture, growing marijuana is becoming part of the American farming landscape. Growers see before them a crop that is both high value and high risk. At one end of the spectrum, they could net millions of dollars an acre. At the other, they could lose their entire investment. Despite pot being legal in Washington and Colorado, it’s still illegal under the federal Controlled Substances Act.

On Aug. 29, U.S. Attorney General Eric Holder called Washington Gov. Jay Inslee and Colorado Gov. John Hickenlooper to outline the federal government’s stance on legalized marijuana. Holder listed the federal government’s priorities that in Washington have been addressed by the state’s Liquor Control Board, which has jurisdiction over the new industry. Holder insisted the states keep pot away from minors, prevent criminals from selling it, prevent it from going to other states, prevent driving under its influence and prevent growing pot on public land and possessing it on federal property.

Holder’s statement does not change federal law, nor does voter-approved Initiative 502 pre-empt it. In fact, the department reserved its right to challenge the state laws at a later time. Washington residents involved in marijuana production or retailing could also be subject to prosecution if the federal government changes its position, for example, under a new president’s administration. One of the enforcement options available to federal authorities is the confiscation of assets.

“I’m not blind to that risk,” said Milton, who hopes to grow marijuana on a large scale near the small town of Vader, in southwestern Washington. “But there’s a movement underway to add places making it legal, like Oregon and Alaska and Portland, Maine.”

The will of the people is moving toward more legalization, he said, and he believes it’s unlikely a new administration would take a different path.

When the Liquor Control Board held public hearings across Washington, project implementation director Randy Simmons said he heard similar words of optimism.

“I don’t think they have a lot to fear. There’s the possibility of a change in federal approach, but other states have medical marijuana and are moving to legalize recreational,” Simmons said. “It’s a once-the-genie’s-out-of-the-bottle mentality."

How permits work

Washington’s new marijuana industry is open to anyone who has lived in the state at least three months, passes a background check and raises money within the state.

The state began accepting applications Nov. 18, and within a week the Liquor Control Board had received more than 400 applications to grow pot, more than 250 to process it and more than 150 to retail it. No specific number has been set on how many permits will be issued, but retail permits will take into account the local population and safety and security issues. The application period ends Dec. 19.

Permits will be issued starting in February or March, Liquor Control Board spokesman Brian Smith said, with priority given to producers and processors so a crop can be ready for retail sales in late spring.

Costs include a $250 application fee, a $1,000 annual renewal fee and additional fees for a background check and filing for a local business license.

Licenses will be granted for three sizes of growing operations:

• Tier 1: Less than 2,000 square feet.

• Tier 2: 2,000-10,000 square feet.

• Tier 3: 10,000-30,000 square feet.

The maximum amount of space for marijuana production in the state is limited to 2 million square feet, or 46 acres — about one-quarter the size of the Washington State Fairgrounds in Puyallup.

That acreage could potentially produce $276 million of marijuana, making it the eighth highest value crop in the state, between nursery and greenhouse production and grapes. The top crop is apples, which brought in $2.2 billion last year.

The 25 percent excise tax imposed at the production, processing and retail levels could earn the state as much as $2 billion over five years, Smith said.

All funds from marijuana excise taxes will be deposited in the Dedicated Marijuana Fund, Simmons said. The money will be disbursed to the Liquor Control Board for administering the program, to Washington State University and the University of Washington for research and to agencies dealing with drug abuse prevention.

The initiative directed the bulk of the money go to the Washington Basic Health Plan. That agency is defunct under the federal Affordable Care Act, Simmons said, so it will fall to the Legislature to decide where the money will go.

State business and occupation taxes will apply to the production and local retail sales.

The plans

Milton has applied for three state permits to grow marijuana on 30,000-square-foot areas, each slightly less than 0.7 acre. He has been aiming to develop 30 acres, including a warehouse he owns south of Vader, and the legalization of marijuana opened the door for new opportunities, he said.

He estimated each grow site has the potential to produce about 7,000 pounds of marijuana worth $8.4 million each year. He also says the community will benefit from the creation of 25 jobs and an added $6,700 a year in property taxes from each site.

“There’s been plenty of support, and some who don’t want it to happen,” he said. “But it doesn’t require a vote.”

Milton’s background is in used car parts, and he has neither experience in agriculture nor knowledge of marijuana.

“That’s kind of a Catch-22,” he said. “Some say you don’t have experience (in growing marijuana), but if I did, I’d be a criminal, guilty of a felony.

“It’s a new industry, so there’s plenty to figure out.”

Milton and other prospective large-scale growers will invest their own money, Simmons said.

“The banking issue is one of the largest challenges facing the industry,” he said.

Banking on marijuana

Banking and access to working capital are problematic, since banks are regulated under federal law and would put themselves at risk of prosecution on racketeering and money-laundering charges. However, the Justice Department wants to address that problem, Deputy U.S. Attorney General James Cole told a congressional committee in September. He said his agency and federal banking regulators will help clear the way for financial institutions to transact business with the legitimate marijuana industry without fear of prosecution, The Associated Press reported.

“It’s not cheap” to get started, Simmons said. “Big operations have their own money, and smaller growers can move over very easily. But the mid-range grower has no place to get capital.”

At the small end of the production scale are people like Pouch, who owns and operates a farm on Washington’s Olympic Peninsula. As a registered medical marijuana patient, he already grows it for his own needs and is “heavily entertaining” the option of seeking a license to grow for the recreational market.

His farm is small, but he wants as big an operation as he can accommodate.

“In business, bigger is better,” he said. “Hopefully we’re all gonna be millionaires — but not really. I’m a farmer anyhow, and I have a deeper passion than making a bunch of money. Instead of ‘Now I can get rich,’ I want to produce a beneficial product.”

Before he dives in, he said, he needs to make sure he feels secure about the federal legal aspects.

“I’m not necessarily an activist, but willing to take risks for what I believe in,” he said.